South Korea wins 232 tariff exemption

NEW YORK — South Korea has negotiated an exemption from the United States' Section 232 steel tariff and instead will be subject to a quota.

South Korea will be assigned an annual US steel import quota of 2.68 million tons, Trade Minister Kim Hyun-chong said in a statement on the Ministry of Trade, Industry and Energy's website on Monday March 26. This is roughly equivalent to 70% of South Korea's annual export volume to the US between 2015 and 2017.

US domestic energy-tubular mills were hoping for a quota of 50% on imports from South Korea, a domestic mill source said. Seventy percent is somewhat of a disappointment but it still installs a ceiling and would prevent a huge flood of import volumes.

"So there's a finite end to it," the US mill source said.

Producers in the United States are bound to enjoy market share gains as a result of the quota, KeyBanc Capital Markets analyst Philip Gibbs wrote in a research note.

"Tenaris should be the biggest gainer given [its] new seamless [oil country tubular goods] capacity in Texas of 600,000 tons annualized, while U.S. Steel and a slew of private producers could benefit on the line pipe side," he said.

Gibbs noted that South Korea purchases about 10% of US ferrous scrap exports.

The agreement to accept quotas instead of the 25% steel tariff is part of ongoing talks to amend the six-year-old US-Korea Free Trade Agreement, known as "Korus," South Korea's trade ministry said. President Donald Trump's administration wants to reduce the bilateral trade deficit, which totaled $27.7 billion in 2016, according to the office of the US Trade Representative (USTR).

Trump has sought greater US access to South Korea's domestic automotive market.

Kim said on Monday that amendments were agreed to, although he did not elaborate except to state that South Korea made no concessions on its agriculture markets and there were no changes to existing tariffs.

Within hours of announcing the deal with the US, South Korea already might be attempting to ease the quota limits, according to the Korea Iron & Steel Association.

South Korea exported 3.62 million tonnes of steel into the United States in 2017, of which about 1.06 million tonnes was comprised of OCTG product and 697,086 tonnes was line pipe. The next-largest category was metallic coated sheet and strip, at 229,000 tonnes.

South Korea was the sixth-largest trading partner to the US in 2016, the USTR said.